Capital expenditure The cost of an improvement made to extend the useful life of a property or to add to its value. Capital improvement Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
Hotel News Now provides the questions each month. What is the biggest obstacle to getting hotel loans finalized in the current economic environment? There is a prevailing disconnect between seller expectations and the lending community. Also, some of the major hotel mortgage lenders seem full in their hotel allocation or are backing away from certain types of hotel projects, limiting the pool of potential lenders for a particular project.
This being said, as a mezzanine lender, we are seeing a wider array of projects requiring mezzanine loans due to this disconnect, making it a very interesting time for us to get involved in some great projects. How would you describe the lending environment for hotel construction projects?
Construction is probably the type of project that I eluded to above that we hear has the largest prohibition on it from major balance sheet lenders. Certainly in a market like New York or Houston, it would take a strong relationship or other financial backstops such as cross-collateralization or a letter of credit to get a construction loan from many groups.
Without naming specific brands, what do you see as the biggest advantages for a borrower to have a flag affiliated with a property they are trying to acquire?
Brands quantify what reservations they send to a hotel and can give you statistics on roomnight production by each of their initiatives, like reservation production through their websites and call centers, and a variety of other data that is especially helpful in underwriting a hotel.
They have a history of data and performance that can make cautious lenders more comfortable. In most markets, they can provide comparable data from a group of hotels by location or brand, which shows the type of effect they can have in the market.
Generally, the way they present this data is very familiar to hotel underwriters who have been working in the hotel space, which increases their level of comfort. However, as a niche investor, I could also say that this is the opportunity in unbranded or lifestyle properties. That certainty comes with a lot of costs.
We are seeing excellent third-party providers come into the revenue management and web marketing arenas that can upset this balance and history of performance by the brands, or hotel operators who have secured a strong following in a specific market positioning.
That would depend largely on the status of stabilized or ramping hotel operation. Interest rates vary widely by deal, mostly based on sponsor, location and market. What two or three economic benchmarks do you track to gauge the future of hotel lending and why?
To provide the backdrop to that analysis, we look at other data sources. GDP is the greatest predictor of hotel RevPAR performance overall, so we want to see a robust economic performance in order to underwrite growth and we prefer locations with diverse economies to provide cushioning during ups and downs of specific industries.
Other data we pull is office absorption—as corporate travel is a strong driver for hotel performance—and household formation, because for a market like a Denver, Nashville, or Austin, the future and the past might look very different in terms of the robustness of the economy, and new households can help show how that change is happening.
Launched in MayRamsfield Hospitality Finance is a New York City-based investment firm set up to provide mezzanine financing for hotel owners and investors for projects in top 25 U. No Comments Log In or enter name Comment Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam.
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